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Withering on the vine

So, you may have heard that the city of Detroit, unable to pay its financial obligations, is declaring bankruptcy.

To everyday conservatives, Detroit is the realization of their worst nightmare: that the house of cards that has been built by various cities, states and the country as a whole will come crashing down if we continue on our current path.

Big problems may take decades to create, but they can quickly prove they exist, and that usually happens all at once, as the Great Depression and 2008 financial crisis taught us.

Hilariously, in the aftermath of the Detroit disaster, liberals claimed that, despite a half century of unchallenged Democratic control of the city, its failure was somehow Republicans’ fault.

I think it is safe to say that no amount of spinning will make such a nonsensical claim closer to the truth.

The real reasons that Detroit collapsed are complicated but at their root can be traced to a few specific things.

The city had an obvious overreliance on a single industry (manufacturing cars) and a refusal to diversify and adapt to the changing market realities around it.

Cheaper, more reliable, better made, safer and more fuel-efficient cars began seeping into the American market gradually, displacing the American automobile. The inferiority of the American-made car could be hidden in a protected market that imposed trade restrictions on imported autos, but once trade became fair, the lumbering Detroit manufacturers began to get beaten. Badly.

The auto industry’s response was to lean on the incestuous relationship between government and big business, rather than innovate and change. They sought (and received) federal and state help to ensure the survival of their companies without any major structural changes that would make them more competitive. This is a process that was repeated several times over many decades.

Detroit’s response was to ignore the decline of auto manufacturing and fail to diversify the city’s economic base, which would have insulated itself from the waning influence of American automobiles. Instead it was married to the past for nostalgia’s sake, insisting on an almost singular devotion to the auto industry, rather than ensure there was a healthy, self-sustaining future.

As we have seen, a government can only artificially prop up a failing industry for so long. The city of Detroit has been losing people: What was once the fourth largest city in the United States now ranks 18th.

Growth is the only thing that can hide a decaying economic base, and the city of Detroit has had negative growth for six decades. As people leave, so does the tax base and the ability of the municipal government to provide the same level of service to its people.

The remaining people in the city were either being employed by the phantom ghost of what was once a real economic engine, working for the public sector, or unemployed. Public employees and the unemployed draw from the government coffers, they don’t contribute net tax receipts, thus exacerbating the problem.

Ultimately, Detroit’s bankruptcy was inevitable because it could not afford the $3 billion obligation it has to unfunded public employee pensions. The public workforce expanded as the city’s population shrunk, leaving fewer taxpayers available to fund more public workers.

So where am I going with this?

The fear of so many of us is that Detroit is little more than a canary in the coal mine. The rapid expansion of government increases the strain on taxpayers to fund it. For a long time, this problem has been hidden by growth, but what happens when growth stalls?

The entire system could implode.

Here in Maine, these fears are amplified. The Pine Tree State continues to hemorrhage young people, and the resulting population grows very little and continues to get older by the day.

That population has a government that even still seems insistent on expanding itself, adding new employees, new spending, new programs, and expansive bureaucracies. Often times the justification of such spending is as some kind of catalyst for economic growth (which never comes).

Without growth and economic diversification, such things eventually become unsustainable.

Is Maine Detroit? Not yet. But every politician who tries to recreate the Maine economy of the 1950s, every politician who tries to prop up dying industries rather than broadening the economic base of the state, and every politician who spends more money and asks the public to cover their excess gets us closer.

We ignore the lessons of Detroit at our own peril.

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About Matthew Gagnon

Matthew Gagnon, of Yarmouth, is the Chief Executive Officer of the Maine Heritage Policy Center, a free market policy think tank based in Portland. Prior to Maine Heritage, he served as a senior strategist for the Republican Governors Association in Washington, D.C. Originally from Hampden, he has been involved with Maine politics for more than a decade.
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Matthew Gagnon

Matthew Gagnon, of Yarmouth, is the Chief Executive Officer of the Maine Heritage Policy Center, a free market policy think tank based in Portland. Prior to Maine Heritage, he served as a senior strategist for the Republican Governors Association in Washington, D.C. Originally from Hampden, he has been involved with Maine politics for more than a decade.